The strategy is aimed
at achieving greater synergy to remain competitive

By SHABBIR H. KAZMI
Oct 13 - 19, 2003

Previously commercial banking history in Pakistan
was usually split in three eras, i.e. pre-nationalization, period
under state control and post privatization. However, now financial
sector experts split into two eras, i.e. pre and post 9/11 eras. The
post 9/11 period appears to be eventful and fast changing the
landscape of commercial banking in the country.

The most striking feature has been the massive exit
of foreign banks from Pakistan. It not because the country has become
un-bankable but foreign banks realizing that they can compete neither
with the 5Bs nor with the private banks. Their niche market has been
has become too small or taken over, to a large extent, by the domestic
banks. Prior to May 28, 1999 around two dozen foreign banks were
operating in Pakistan. After the freezing of foreign currency accounts
the niche clients were no longer interested maintaining foreign
currency accounts. A large number of foreign banks have sold their
Pakistan operations to local counterparts. Analysts forecast that the
number will reduce to less than half a dozen in the long run.

Due to technology revolution banking is no longer
confined to bricks and mortar branches. Some of the foreign banks
initially invested in technology to overcome the problem of limited
number of branches by offering phone banking and ATMs facilities.
However, Muslim Commercial Bank (MCB) and some of the private banks
were prompt in following the footprints of their peers.

Besides installation of dedicated ATMs two big
networks are operating in the country. These ATMs provide an
opportunity to the account holders to withdraw cash from any ATM in
the close vicinity. However, very few people know that they pay Rs 15
per when they use transaction the non-dedicated ATM (installed by some
other bank).

For quite some time Dr. Ishrat
Husain, Governor,
State Bank of Pakistan (SBP) has been talking about reducing the
number of banks incorporated in Pakistan. His contention has been that
instead of a large number of inadequately capitalized banks, the
country should have fewer but financially strong banks. Initially
private banks were established with Rs 200 million paid-up capital and
over the years the requirement has been enhanced to Rs 1,000 million.
Some of the banking sector experts believe that the minimum paid-up
capital should be enhanced to Rs 2,000 million over the next five
years.

Meeting the requirement of enhanced paid-up capital
was one of the factors that forced the foreign banks operating in
Pakistan to redefine their strategy. Since they has lost their biggest
stronghold, foreign currency deposits and limited number of branches
has also become a serious constraint most of the smaller banks
preferred to sell their Pakistan operations. The foreign banks taking
an exit from the country include Bank of America, Emirates Bank
International, Societe Generale, Doha Bank, Mashreque Bank and IFIC.
ANZ Grindlays was merged with Standard Chartered Bank as a result of
global merger.

Many of the large Pakistani groups that did not
apply for banking license in nineties realized their mistake. As the
SBP made it clear that no more banking licenses would be issued, some
of them were keenly looking for an opportunity to takeover the
existing banks. As some of the banks ran into problems and the SBP
expressed its desire for change of management two transactions took
place, change of management of Union Bank, Gulf Commercial Bank,
Prudential Bank and Platinum Bank. Al-Meezan Investment Bank acquired
Pakistan operations of Societe Generale and the amalgamated entity,
Meezan Bank, became the first ever commercial bank offering Riba free
banking. Crescent Investment Bank took over Mashreque Bank and Trust
Investment Bank acquired Doha Bank. Another important transaction was
take over of IFIC by National Developing Leasing Corporation (NDLC).

OUTLOOK

The ongoing phenomenon of mergers and acquisitions
is best explained by a quote from Aquib Memboob Elahi, Head of
Research, AKD Securities, We expect the death of commercial banks as
we know them and bid welcome to 'financial supermarkets'. The concept
of financial super markets is not the brainchild of Aquib. Mohammad
Ali Khoja, Chairman, PICIC is the pioneer of this concept. Following
this strategy PICIC took over Gulf Commercial Bank, established
Leasing Division within PICIC. The DFI now uses the slogan in its
advertisements, 'PICIC the Financial Supermarket'. Others following
PICIC's strategy are Pak Kuwait Investment Company, Khadim Ali Shah
Bukhari & Company and Faysal Bank.

According to the concept of Financial Supermarkets
commercial banks plan to offer the complete range of financial
services under one umbrella. Till recently, the various services were
being offered through independent entities. The concept has already
been accepted and yielding positive results. It is expected to further
proliferate to achieve greater synergy. More mergers and acquisitions
are expected in the days to come.